When I lived in Vermont in the ‘90s, real-estate whiz Les Otten wanted to change the way Sugarbush resort serviced its Castle Rock area. Specifically, he wanted to route a high-speed quad into the quiet, natural-snow-only section. In response, several locals carried signs that read, “More Rock. Less Otten.”
I sometimes feel that I should be carrying a placard around these markets, and it should read, “More Investing. Less Trading.”
Excessive trading increases transaction costs and exposes you to a performance headwind. An annual turnover of 100% costs the typical investor about half a percent per year. This may not seem like much, but it adds up. Most high-turnover portfolios don’t add enough value to justify that kind of trading.
The other extreme is Warren Buffett, whose preferred holding period is “forever.” If that’s the case, you’re going to be very careful what kind of stocks and bonds you buy and what price you buy them at. This seems sensible, but I have two observations. First, none of us live forever, so a forever holding period seems too long. Second, you can’t hold a bond forever. The money comes back when the bond matures, and a short bond is different than a long bond.
So some kind of active investment is necessary. But the churning, burning, price-chasing, panic-driven buying and selling that’s been common for the past decade is anything but focused. More often it seems like many folks are part of a stock-of-the-month club. This seems likely only to benefit those making commissions off of trading.
In the end, Les Otten didn’t expand Castle Rock and it remains a quiet, challenging set of expert ski runs. Let’s hope quiet, thoughtful investing also wins out.
Douglas R. Tengdin, CFA
Chief Investment Officer
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